23 Sep Banks and Credit Unions Can Keep Your Money When Bankruptcy is Filed
Once bankruptcy is filed, creditors can’t try to collect a debt that was owed at filing and this protection is automatic and immediate, at the instant a case is filed. Any action by a creditor to collect from someone in bankruptcy is against the law and subject to legal action for damages. Once a debt is discharged, the debt isn’t owed anymore and any collection efforts made also violate the law.
However, if there is money in an account when a bankruptcy case is filed, and the debtor owes that credit union or bank some money, then the lenders may be able to keep whatever money is in the borrower’s account to apply against debts owed to them. This is because the bank that has your money may be allowed to offset (keep) or freeze the funds they are hold for you.
Credit unions often give their members car loans, signature loans, credit cards, which the borrower thinks is just an unsecured debt (no collateral). But if they file bankruptcy and owe their credit union, they may find that all the money in their account has been taken and applied against the unsecured loans. Credit cards that are associated with a bank are not as clear cut since the credit cards are often sold, or moved from bank to bank.
Be aware that some institutions will freeze an account even if they aren’t owed money, but at some point they will be required to release the funds if they belong to the debtor.
To be safe, I advise clients to put their funds in an institution that there is no chance they owe, to lessen the chance of any unexpected surprises. I also recommend that my clients have a little bit of cash on hand at filing, enough to get gas or food if needed – just in case.
If I File Bankruptcy, Can I Keep My Bank Accounts? by By Dana Wilkinson, SC Bankruptcy Lawyer
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